Oracle Blog

(Masood Mortazavi)

Wednesday May 20, 2009

Last year, competitive strategy guru and Harvard business school professor Michael Porter wrote about "Why America Needs an Economic Strategy." In this brief note for BusinessWeek, Porter emphasizes the importance of infrastructure, logistics and educational upgrades in the U.S. economic system, as key success factors.

These infrastructure upgrades will demand new IT technologies deployed throughout, including upgrades related to people logistics and transportation.

These upgrades, including upgrades that will affect the way we live and work in our urban and suburban environments and those that will make public transportation much more attractive alternatives, will also have a direct impact on other ecological problems we face, including the dangerous changes such as the ones that are now affecting the ice caps. See for example, the report in The Independent, "Exclusive: Scientists warn that there may be no ice at North Pole this summer."

System-level thinking teaches us that various domains of our activity and concern are in fact very well-connected and tied up in complex dynamics.

Tragedies occur when systems and their dynamics are not properly understood.

Relying on hasty moves, fire-fighting and denying the interplay of of dynamics and time has led to many mispercieved problems and "solutions" that only aggravate problems or create new ones.

Careful attention, deep study and addressing the root causes of these global and systemic problems may deliver a better future path to recovery.

In order to do all this, one needs to have a good understanding of complex systems and their dyamics. This is subtle art and requires a comprehensive understanding of various system components and how they interact, including a mental model for these interactions.

I'm afraid I have to bring the news that not everyone has had the experience or has accumulated the knowledge for that kind of integrative thinking. This is why we should set aside our bias against those who refuse to be dragged into firefights. These are people who pause to pay proper attention to problems and discover real solutions. This pause doesn't imply slow thinking, rather a paced mode of thinking. These people should be cherished rather than isolated, refused and blocked from hierarchical decision systems that emphasize perpetual firefights. (Studies have shown that "firefight" mode of thinking and acting is much more prevalent in U.S. business and government institutions when compare to Japan or other countries where root solutions are the focus. So, we may need a general cultural change to lay greater value to system thinking and problem-solving that addresses root causes.)

In general, systems thinking will get us to where we want to be. In general, symptomatic and firefight solutions may solve the problem momentarily but will only get us farther from where we want to head.

In the age of globalization, conventional wisdom holds that supply chains prioritize labor-cost arbitrage over mere distance.

Geography, however, could make a comeback. Triple-digit oil provided
the first intimation of this. Jeff Rubin, chief economist for CIBC
World Markets, estimates $150 crude oil boosted the cost of shipping
imports to the U.S. by 11%, costing roughly as much as trade tariffs in
the 1970s.

Crude now trades under $50 a barrel, but the crash reflects
faltering demand more than rising supply. When demand recovers, oil
prices will, too.

Marc Levinson, author of container-shipping history "The Box,"
suggests the world also is hitting the limits of economies of scale in
logistics, citing bottlenecks at ports and congested road and rail
networks. These impose costs and delays and, as supply chains have
become more complex, more potential points of failure. Initiatives
forcing ships to reduce harmful emissions also will weigh on economics.

Innovation could change the equation again. But the ultimate facts
of mass and distance are inescapable when it comes to rethinking
logistics.

One answer will be shorter, regional supply chains -- a phenomenon
observed in changing sources of U.S. imports during the 1970s oil
shocks. That ought to have positive implications for exporting
economies such as Mexico, while China could suffer.

U.S. workers cheered by the prospect of jobs returning home,
however, shouldn't be too jubilant: Globalization and labor arbitrage
aren't going away. And rising supply-chain costs mean U.S. workers will
pay higher prices for the goods they buy.